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Can growth-enhanced monetary policy improve welfare when people seek social status?

  • Hsiu-Yun Lee
  • Yu-Lin Wang

    ()

  • Wen-Ya Chang
Registered author(s):

    This paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule. Copyright Springer-Verlag Wien 2013

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    File URL: http://hdl.handle.net/10.1007/s00712-013-0350-8
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    Article provided by Springer in its journal Journal of Economics.

    Volume (Year): 110 (2013)
    Issue (Month): 3 (November)
    Pages: 257-272

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    Handle: RePEc:kap:jeczfn:v:110:y:2013:i:3:p:257-272
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    1. Hung-Ju Chen & Jang-Ting Guo, 2009. "Social Status And The Growth Effect Of Money," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 133-141.
    2. Palivos, Theodore & Yip, Chong K, 1995. "Government Expenditure Financing in an Endogenous Growth Model: A Comparison," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1159-78, November.
    3. Dotsey, Michael & Sarte, Pierre Daniel, 2000. "Inflation uncertainty and growth in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 631-655, June.
    4. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    5. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
    6. Jess Benhabib & Mark M. Spiegel, 2009. "Moderate Inflation and the Deflation-Depression Link," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 787-798, 06.
    7. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
    8. Pelloni, A. & Waldmann, R., 1997. "Can Waste Improve Welfare?," Economics Working Papers eco97/12, European University Institute.
    9. Ahmed, Shaghil & Rogers, John H., 2000. "Inflation and the great ratios: Long term evidence from the U.S," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 3-35, February.
    10. Heng-fu Zou, 1998. "The spirit of capitalism, social status, money, and accumulation," Journal of Economics, Springer, vol. 68(3), pages 219-233, October.
    11. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
    12. Chang, Wen-ya & Hsieh, Yi-ni & Lai, Ching-chong, 2000. "Social status, inflation, and endogenous growth in a cash-in-advance economy," European Journal of Political Economy, Elsevier, vol. 16(3), pages 535-545, September.
    13. repec:ebl:ecbull:v:5:y:2008:i:13:p:1-7 is not listed on IDEAS
    14. Jang-Ting Guo & Shu-Hua Chen, 2008. "On the growth and velocity effects of money," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-7.
    15. Wen-ya Chang, 2006. "Relative Wealth, Consumption Taxation, and Economic Growth," Journal of Economics, Springer, vol. 88(2), pages 103-129, 08.
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